Working For Change

Promoting Jobs and Employability

Policy Paper 9

Contents

1. Work and Unemployment 3 1.1 The Changing Labour Market 3 1.2 The Nature of Unemployment 4

2. The Liberal Democrat Approach 7

3. Promoting Employability 8 3.1 Delivering Learning 9 3.2 Funding 10 3.3 Organisation 11

4. Expanding Employment 13 4.1 Investing for the Future 13 4.2 The Social Benefits of Employment 14 4.3 Regional and Local Economies 15 4.4 Regional Initiatives 16 4.5 Local Action 17 4.6 Small Firms 17

5. Increasing Flexibility - New Hope for the Unemployed 19 5.1 Tax and Benefits Policy: Creating Opportunities 20 5.2 Working Benefits 20 5.3 Increasing Mobility 21 5.4 Flexible Working Patterns 22

6. Citizen’s Service 23

7. Citizens at Work 24 7.1 Rights and Responsibilities 24 7.2 Discrimination in Employment 25 7.3 Consultation and Participation 26 7.4 Profit Sharing and Employee Share Ownership 28 7.5 The Role of Trade Unions 29

8. Pay 31 8.1 Low Pay 31 8.2 Other Issues for Legislation 33 8.3 Public Sector Pay 34 8.4 Pay and the Public Interest 34

Work and Unemployment

“A person who has difficulty in buying the few for coal miners in contemporary Britain, labour that he wants suffers inconvenience or while in the service sector many middle reduction of profits. A person who cannot sell management and clerical jobs are disappearing. his labour is in effect told that he is of no use. The first difficulty causes annoyance or loss. 1.1.3 People who are in demand in the new The other is a personal catastrophe.” labour market are adaptable, well educated, William Beveridge, 1944 entrepreneurial and willing to go on learning new skills. They will probably have to, since 1.0.1 Unemployment ranks high amongst the they may change their jobs many times, and issues that most trouble people, and rightly so. their careers several times, in the course of a The economic and social costs of nearly one working lifetime. These men and women form person in ten in Britain being out of work are the core of the new workforce. They are unacceptable. But unemployment cannot be expected to work hard, often for very long tackled, nor can policy responses to it be hours and in stressful situations. In return they effective, until the scale of the revolution in receive a high remuneration and expect to be work that has taken place over the past 20 consulted and involved in the decisions that years has been grasped. shape their working lives. This core workforce will increase in size, its pay will probably 1.1 The Changing Labour increase faster and its productivity faster still. It has been predicted that in time this core will Market consist of half of today’s workforce, paid twice as much and producing three times as much. 1.1.1 The labour market in Britain, and indeed in other advanced industrial countries, 1.1.4 There is a second group of people who has changed out of all recognition. There are represent the traditional labour market, those two major reasons for this. The first is the with hitherto secure life-long jobs. These globalisation of business; producers today people are mainly in the public sector - doctors, compete for markets in a world in which police officers, teachers, postal workers and so borders are almost irrelevant, and in which on. But the traditional labour market is most trade restrictions have been swept away. disappearing fast. Secure public sector International competitiveness is key. To employment is being privatised and turned into survive, firms and countries alike have to keep fixed term jobs, or jobs for contractors or up with the latest technological innovations, franchisees. The number and proportion of seize opportunities as they arise, and fill niches lifetime posts is declining all the time. Nor is it for new or different products. only the security of these jobs that is changing, but their substance. They are subject to more 1.1.2 The second reason for the revolution in competition, internal and external. Their work is the scale and pervasiveness of new customers are more demanding. And they too technologies, in particular information are challenged by technological advances, from technology. Whole new industries and many new medical techniques to electronic mail. new jobs have been created because of these Nothing stands still. technologies. But many other jobs have been lost and skills made obsolete as older systems 1.1.5 A third group of people occupy jobs in of production and work organisation have parts of the private services sector, such as declined. There are no jobs for shipwrights and retailing and leisure, which have expanded in

Working for Change Page 3 recent years. Most of this group is female, part- work for more than a year, and over 300,000 time, low paid and low skilled; their jobs, for more than three years. however, are not particularly precarious and their part-time status often the result of their 1.1.10 For the economy, unemployment own choice. means both a loss of resources and a loss, sometimes irreplaceable, of talent and 1.1.6 All these relatively successful groups opportunities to acquire skills and work in the labour market lack, however, a sense of experience, particularly for young people. security. They cannot know what tomorrow Unemployment places heavy demands on the may bring. They have to live with much more Exchequer. Each person unemployed costs the uncertainty than did their parents or country nearly £9,000 a year in benefits and grandparents. They are not concerned simply tax revenue foregone - which means that the with their wage or salary; they want to nation as a whole is paying nearly £25 billion a maintain efficient public services - health, year to keep men and women out of work, a education, policing - and they are prepared to huge waste of public resources. pay reasonable taxes to improve them. 1.1.11 For society, unemployment at current 1.1.7 Around these core groups is a levels - particularly amongst young unskilled periphery of other workers, usually less skilled, men - exacerbates crime and racial and social many of them part-time or temporary. Most of tensions as well as increasing inequality. The them are not well paid; they have little job large numbers of people who are unemployed security and few prospects. Many are women. for a year or more contribute to the emergence Recent statistics indicate that the position of the of a largely unskilled and increasingly least well paid among them, the bottom 10% of unemployable underclass. people in work, has deteriorated seriously relative to the rest of the workforce. 1.1.12 For the individual, unemployment imposes both poverty and the misery of 1.1.8 Self-employment has risen by over enforced idleness and isolation. It is hard to two-thirds since 1979, bringing both new retain self-confidence and a sense of self-worth opportunities and new problems. In general, the during a long spell of unemployment. It weighs labour market has become much more fluid, especially heavily on particular groups at a with more people moving both in and out. disadvantage in the labour market - people with During 1994, a fall in unemployment has been disabilities; ethnic minorities; women lacking accompanied by a reduction in the numbers recent working experience; men and women employed, probably reflecting increased aged 40 and over who are made redundant; and numbers in higher and further education or young people, especially those with poor taking up earlier retirement or self-employment. education or few skills. Yet most people want to contribute to society, just as they want to 1.1.9 Finally, and most damagingly, there discover and develop their own potential. are the unemployed. For nearly 20 years, unemployment in Britain has been at least 1.2 The Nature of double the level of 3% set by Beveridge in the 1940s to define a state of full employment. Unemployment Today, even after numerous administrative redefinitions effectively removing up to a 1.2.1 The problem of unemployment affects million people from the register, it stands at most of the industrialised world. The current 2,642,300, or 9.4% of the workforce (June British rate is just under the average for the EU 1994), more than three times Beveridge’s (10%), while in the OECD as a whole numbers figure. By 1979 definitions the unemployment have more than trebled since 1972, from 11 to rate would be closer to 12%. Of those 35 million. A long run decline in employment in unemployed, over a million have been out of the primary and manufacturing industries

Page 4 Working for Change has caused job losses over most of the century, major part in the over-expansion of the UK but this has accelerated in recent years; a third economy in the late 1980s, while over-reaction of the manufacturing jobs in Britain in 1979 to the boom led in the early 1990s to an has since disappeared. Even in sectors which unnecessarily deep and long recession. are expanding, intensive capital investment can Similarly in Europe as a whole, the produce ‘jobless growth’. Until fairly recently, Bundesbank’s very cautious approach to this decline was offset by expansion in services, interest rates in the 1980s and its continuing both private (eg finance, retailing, hotels and tight stance throughout the period of German catering) and public (eg health, education and unification undoubtedly affected levels of welfare). However, in the last few years, unemployment. As the European Commission’s privatisation and the contraction of the public 1993 White Paper Growth, Competitiveness sector - notably in defence - has ended this and Employment recognises, both in Britain balance. and in the rest of Europe some part at least of the current unemployment would traditionally 1.2.2 Unemployment falls into three have been described as cyclical - ie it would categories. Frictional unemployment is caused disappear if governments took action to expand by people changing jobs. Since this happens all demand. the time, there is always likely to be a minimum, frictional, level of unemployment of 1.2.5 However, the fact that in 1988-89 UK between 3 and 4% (higher than Beveridge’s 3% unemployment failed to fall below 7% even at due to greater job mobility.) Structural the height of the boom confirms that structural unemployment is caused by changing patterns unemployment is also to blame. The of industrial and employment structure; in any phenomenon of old industries declining and dynamic economy some sectors are growing shedding jobs before new industries can expand and others declining, with accompanying job to take up the slack has been part of the gains and losses. Cyclical unemployment arises dynamic of growth ever since the industrial from inadequate aggregate demand, such as revolution. However, the process is not a occurs in a recession. The classical definition smooth one. Industries tend to decline faster in of full employment is a situation in which periods of recession and new industries grow anyone of adequate capacity seeking a full time faster in periods of boom. This suggests some job can obtain one - ie there is little or no linkage between cyclical and structural structural or cyclical unemployment. Since unemployment. most EU countries have for the last 10 years endured unemployment rates over twice the 1.2.6 Developments in science and frictional rate, they have clearly been technology also influence the rise of new experiencing either cyclical or structural industries - and the decline of old - and these unemployment or both. too do not occur smoothly. Major scientific breakthroughs are random events which have 1.2.3 It has become fashionable to dismiss knock-on effects of great magnitude. The cyclical unemployment as a major factor. development and application of new Whereas Keynes argued that governments technologies both affects and is affected by could, and should, take action to limits the ups what is happening in the economy. The and downs of the trade cycle through demand diffusion of a new technology depends crucially management, the prevailing conservative view on firms being prepared to invest and take risks has been that governments abuse this power - which tends not to happen in the depths of a and that their actions exacerbate rather than recession, when firms often cut back on both ease the problems of unemployment. investment and R&D expenditure.

1.2.4 Yet the role of government is seldom 1.2.7 It is often suggested that the new neutral. The Conservatives’ cuts in interest technologies being introduced today, especially rates and income tax in 1987-88 played a those associated with computerisation and

Working for Change Page 5 automation, are by their nature labour-saving up of new technologies. What is more, firms, and therefore destroy jobs. While in particular preoccupied with maintaining profits, often see instances this is true, the history of that part of the investment which is most industrialisation has to date been one of critical to the introduction of new technologies creating jobs overall. New technologies - research, development and training increase the output of those in work, which in expenditures - as the most expendable in times turn means either increased earnings or less of crisis. In turn this limits the adaptability of work time, or in practice usually both. The the economy in the upturn. extra spending from higher earnings in turn creates more jobs, but not necessarily in the 1.2.11 Take the example of training. In some same areas. Much of the extra earnings skills, shortages are present even in the middle generated during the 1980s from of recession, with the result that when activity computerisation, for example, was spent on begins to pick up the shortage becomes acute. homes and gardens and new jobs were created When this happens, employers will raise wages in DIY stores and garden centres. This creation and salaries in their efforts to attract skilled of new jobs from higher spending has happened staff and thus create inflationary pressures at time and again since the industrial revolution. an early point in the cycle. (Bricklayers’ wages in London, for example, rose by 25% in the 1.2.8 There are, however, two caveats. First, first quarter of 1994 as the property sector the time dimension. It takes time for the extra pulled out of recession.) In turn inflation tends incomes created by using new technologies to to trigger changes in policy which means that, ‘trickle down’ through the economy and create just at the point when the economy is beginning new demands. The pace will be influenced by to recover, government clamps down again, investment, not only in the replacement of old perpetuating the stop-go cycle which has plant and equipment, but also in the new skills characterised the British economy throughout and working methods needed to make use of it. the postwar period. Second, the international dimension. No modern economy exists in isolation. If britain’s 1.2.12 In other words, Britain has ended up in competitiors are picking up and using new a vicious circle. In the long run the technoogies faster than British firms then they unemployment problem will not be cured unless may well be in a position to offer the same the economy becomes more competitive vis-à- quality goods at lower prices. vis countries like the US, Japan and South Korea, which are dominating the development 1.2.9 While the application of new of new technologies. Yet it is mainly the technology in Britain will generate extra present structural problems of the UK economy earnings, therefore, those earnings will only which inhibit the long term investment - in create new jobs at home if British industry is plant and equipment, R&D, education and competitive with overseas producers. And the training - necessary to cure those structural UK has a poor record both in investment in problems. What is needed is a set of policies education and training, and in picking up and which simultaneously tackles both the using new technologies. British firms’ inability structural and the cyclical elements in to compete has tended to push them into the unemployment and which is sufficiently lower technology end of the market, into which adaptable to remain relevant within a rapidly many newly industrialising countries are changing global market. moving and where price competition is very intense.

1.2.10 There is, therefore, no neat divide between the structural and cyclical aspects of unemployment. Low levels of investment which characterise periods of recession limit the take-

Page 6 Working for Change The Liberal Democrat Approach

2.0.1 The core belief of Liberal Democrats regional and local economies and assisting is that every individual should have the small firms to grow and compete. opportunity to discover and develop his or her own potential. Millions of British citizens
Increasing flexibility: improving the currently live their lives without ever operation of the labour market by removing knowing what they might have achieved. obstacles to employment and job mobility and This is a tragedy, not only for the individuals taking radical action to bring the long-term themselves, but also for society and for the unemployed back into economic activity. country as a whole. Britain’s future prosperity depends on the success with
Encouraging community service: which the skills and talents of its people can providing the opportunity, especially for young be developed and harnessed. Britain’s people, to participate in and learn from society cannot flourish unless all its members ‘Citizen’s Service’. are able to develop and contribute.
Enabling employees to exercise their 2.0.2 In 1990s Britain, unemployment is one full potential: creating a framework of mutual of the biggest barriers to individuals realising rights and obligations within which everyone their own potential - and, consequently, to the who works and manages will benefit - including ability of the economy and of society to prosper protection against exploitation for those on the and develop. We believe that a market-based employment periphery. economy is best at generating prosperity, maximising choice, decentralising economic 2.0.4 Each of these themes is explored in the power and stimulating innovation. However, it following chapters. Applied together, they form is clear that the free play of market forces alone an effective package for increasing employment will not produce the employment outcome and improving working conditions in a fast- society desires. We believe, therefore, that a changing labour market. We cannot promise key responsibility of government at all levels - the return of ‘full employment’ in Beveridge’s European, UK, national, regional and local - is sense of the word; in today’s interdependent to attack unemployment, and to do everything world, no single national government could. In in its power to maximise employment the long term, changes in society’s attitudes to opportunities. ‘work’ and ‘employment’, including greater recognition of the values of voluntary work and 2.0.3 The Liberal Democrat approach caring (topics to which we will return in a centres around five themes: future policy paper), will in any case change the definition of this term out of all recognition.
Promoting full employability: investing in education and training to ensure 2.0.5 But in the present circumstances there that every individual is skilled and adaptable is enormous scope for action. Policies, like enough not to become permanently and people, need to be adaptable and responsive. involuntarily excluded from the workforce. We do not believe that there is any single, simple answer, a ‘magic bullet’ which will
Boosting employment: stimulating the solve the problem. But we do believe that it is capacity of the economy to create additional the responsibility of government to promote the jobs, by investing in Britain’s neglected social highest possible level of employment in today’s and economic infrastructure, regenerating open market economy - and that is our aim.

Working for Change Page 7 Promoting Employability

3.0.1 The concept of employability is British employees receives training from their crucial to our strategy of attacking employer. unemployment. By this we mean that no-one should be permanently and involuntarily 3.0.4 In England and Wales (it is far less excluded from participating in the workforce true of Scotland) there has been a failure to through lack of skills. People may indeed straddle the gulf between academic and experience periods of unemployment, but vocational education. Vocational education has these should neither be so long nor so been the poor relation; training has often been frequent as permanently to undermine their short term and low quality, especially since the confidence or devalue them in the eyes of once respected apprenticeship system was employers. Government should follow largely abandoned. Recognition of the need for policies which maximise individuals’ parity of esteem between vocational and potential for employment, increasing their academic qualifications is the essential first skills and their ability to adapt to different step on the road to a proper, effective learning kinds of work. revolution.

3.0.2 Education and training are thus the 3.0.5 Liberal Democrats’ key proposals for keys to promoting full employability. All the education are: evidence shows that, if the British economy is to be competitive in the next century, it will be • A guarantee of access to pre-school necessary to pursue a policy of fostering high education for every three and four year old quality, high value added products which will in the country. require a well educated, highly (but flexibly) skilled population. Rapid technological and • Increased funding for books, equipment and economic change mean that people will need a school buildings, and for pupils with special wide range of skills, among them the ability to educational needs. communicate, to assess, to adapt and to work with others. Training in such skills demands a • The equivalent of at least two days a week good, broad educational foundation, to provide education or training for all 16-18 year-olds school leavers with a confident grasp of (see further in 3.1.4). language and numeracy. To such a base, more specialised competences can readily be added. • An entitlement, for every adult, to a period of education or retraining at a time of their 3.0.3 Britain’s poor performance in choice. Cost implications require this education and training ranks as a national entitlement to be based on distance learning crisis. Only one in three of Britain’s three and costs and phased in; we would start with four year olds attends nursery school - the those groups most in need, including the worst record in the EU apart from Portugal. long-term unemployed and lone parents. Just 25% of Britain’s 18 year-olds are in full- time education, fewer than in any OECD nation • Further expansion of universities and other than Turkey. Although for over 30 years colleges, opening up access to higher successive governments have acknowledged the education. need to improve training, the British workforce remains poorly trained compared with other 3.0.6 These proposals are set out in full in developed countries. Only one in seven of English White Paper 4, Excellence for All

Page 8 Working for Change (1992), and are not further covered here. The training system, providing independent and remainder of this Chapter deals specifically objective help and advice for school leavers and with training policy. In making this distinction, those beginning working life, in close however, it is important not to understate the collaboration with schools, colleges and TECs. value of a broad general educational Local authorities should remain responsible for background. Training related to specific skills the Careers Service. and jobs is most important, but will be far more effective if it builds on a sound educational 3.1.4 We reaffirm existing Liberal Democrat background that teaches people how to learn policy to require employers to release their and how to adapt - the key component of employees aged under 19 for a minimum of two employability. days a week further education and/or training (either in-house or external) for nationally 3.0.7 Increasing the employability of the validated qualifications. Young people aged 16 long-term unemployed is also an important to 18 who choose not to stay on at school and issue; in many ways people who have been who do not find a job would be given a similar unemployed for more than six months find training guarantee by local TECs and would themselves excluded from the labour market. receive a government training allowance, This is dealt with in Section 5.2. subject to regular attendance. Any wages employers chose to pay to trainees for these 3.1 Delivering Learning two days would not be deductible from the Training Levy (see 3.2.2) but, if additional

training was provided during the remaining 3.1.1 The needs of young people must have a three days of the week (in traineeships or short central place in training strategy. Youth apprenticeships), costs would be deductible. unemployment now accounts for a third of the We would aim to extend this entitlement when unemployed, including nearly 80,000 16 and 17 feasible; the idea of employing two young year olds without a job, training place or people for each full time job (with one of them benefits. Training must be related closely to the undergoing training or education on any given needs of the changing labour market. While we day), for instance, is an attractive one. welcome the Government’s recent announcement of modern apprenticeship schemes, the failure to provide any new resources will greatly limit their effectiveness. Education and training are the keys to promoting 3.1.2 Links between academic and employability. vocational education and training should be encouraged at school. School-to-work programmes and apprenticeships for school 3.1.5 Employers would be required to leavers are necessary and effective. Without incorporate a commitment to suitable, work- them, young people may drop out of work- related training as an express term in the based society altogether. Work experience individual contracts of all employees. We should be part of education from the age of 14, would build on existing schemes such as the though it must be carefully structured to Investors in People Standard, the National complement individual learning, and should be Training Awards and the National Targets for part of each person’s portfolio of achievement. Education and Training, with the active Work experience will normally constitute only involvement of TECs, in order to focus a small part of the school week, but it can attention on the quality of training in strongly motivate pupils, especially those who companies. Trade unions would be encouraged cannot see the point of learning. to play an active role in monitoring quality and delivery. The government has a role in 3.1.3 An effective Careers Service is an promoting good training standards and essential part of a modern education and supporting relevant research; the German

Working for Change Page 9 Federal Institute for Vocational Training offers coherence to existing vocational qualifications a possible model. We would consider creating a and to fill the gaps in their coverage; the need statutory entitlement for all employees to study was seen as particularly marked at technician leave for recognised educational or training and craft levels. Occupational standards and courses. NVQs have made firms think more about competences and skills, and their acceptability 3.1.6 Training for those out of employment is growing after a difficult start. However, the is just as important. Existing schemes such as system is too bureaucratic and requires a Training for Work have been starved of funds thorough and urgent review in order to by central government and given a low priority establish credibility with employers. by TECs. We would give local education authorities the responsibility for promoting the 3.1.9 We would build into the NVQ system a employability of unemployed people. continuous review process to ensure consistent Community scheme jobs funded through our quality of delivery. The on-the-job assessment Benefit Transfer Programme (see 5.2) would process depends for its success on greatly contain a strong element of training. We would enhancing the understanding of training and also give unemployed people the highest assessment in the workplace and requires a priority in phasing in our entitlement to a drive to develop the training and mentoring period of education or retraining throughout skills of first-line managers and supervisors. life (see 3.0.5). We would end the so-called ‘21 Models of good practice should be adopted hour rule’, which currently leads to withdrawal from other countries; Britain has much to learn of benefits from anyone studying or being in the areas of providing basic education and trained for more than 21 hours a week while training (employability training and job-based unemployed. vocational training), work experience for school students, and closer integration with 3.1.7 The concept of individual ‘learning educational programmes. accounts’ has been proposed as a method of coordinating and encouraging training and 3.1.10 Quality assurance mechanisms should education. A series of joint accounts would be be expanded and improved to ensure that established between employers and employees, national standards are recognised and delivered or between unemployed people and the state. throughout the country. This includes The accounts would be used to purchase strengthened arrangements for the accreditation education and training, with the individuals of training providers, higher training levels of concerned exercising a considerable degree of trainers, supervisors and mentors and a unified choice over what courses they purchased. This inspection service. A proportion of the Training idea fits in well with the proposals we have put Levy proceeds (see 3.2.2) would be devoted to forward above, and we welcome and encourage funding the training of trainers in industry. it. 3.2 Funding

Our objective is to encourage 3.2.1 The Liberal Democrat objective is to all companies to develop a encourage all companies to develop a culture in culture in which investment in which investment in human resources is given a human resources is given a high priority. In addition to the measures set high priority. out in Section 3.1, we would introduce a statutory requirement for companies to disclose their expenditure on training, broken down by 3.1.8 A central requirement of any training staff grade, in their published accounts and strategy is a comprehensive set of recognised financial statements. and valued qualifications. The aim of National Vocational Qualifications (NVQs) was to bring

Page 10 Working for Change 3.2.2 Industry currently possesses an uneven rather than the needs of their localities; in level of commitment to training. Companies economic development they can compete with which invest substantially in training and local authorities and other government agencies development risk losing their skilled staff to (see Section 4.5). Their boards tend to be free-riding competitors. We would therefore insufficiently representative of local businesses introduce a remissible Training Levy, a and the local community, and many of their proposal recently endorsed by the OECD chairmen have been party political appointees. (OECD Jobs Study, 1994). We propose an TECs’ reliance on short-term funding and the easily administered levy equivalent to 2% of unnecessary restrictions placed on them by companies’ payroll, minus their approved central government have discouraged long term expenditure on training, with a minimum planning and investment in high quality payment of zero. Firms would not be able to training. make deductions unless they offered training opportunities of approved quality to all 3.3.3 We therefore believe that TECs need to employees. Companies employing very small be restructured. First, local accountability must numbers of people would be exempt. be improved. Industry should continue to have the lead role, so that companies are encouraged 3.2.3 The Training Levy would be collected to take responsibility for identifying and through the tax system, with the net proceeds meeting training needs. However, TECs must hypothecated to training and redistributed via be more broadly based, drawing on the support regional governments (before their of small and medium as well as large establishment, via the existing Integrated businesses and working in partnership with Regional Offices of government departments) local authorities, education and community to TECs, local authorities and the sector-based interests. We would encourage TECs to Industry Training Organisations. Rebates continue to develop close working links with would be based on audited expenditure on local chambers of commerce to minimise training as published in companies’ financial duplication of services, and to consult widely reports. with local authorities, businesses and the voluntary sector. TEC boards should consist of 3.3 Organisation a simple majority (instead of two-thirds, as at present) of business and industry

representatives, including at least two members 3.3.1 Changes in structure and strategy are drawn from the small business and self- required nationally and locally in order to employed sector. Other members should create the coherent provision of learning include local authority, education, trade union opportunities so clearly needed, and to forge and voluntary sector representation. acceptable levels of accountability. For Liberal

Democrats, local delivery is crucial. Whilst the 3.3.4 The names and addresses of board 82 Training and Enterprise Councils (TECs) in members, and regular reports on TEC activities England and Wales, together with the 22 Local and plans, should be widely publicised and Enterprise Companies in Scotland, have varied accessible to the communities they serve. greatly in their effectiveness, we support the Meetings should be open to the public and concept of giving responsibility to local bodies agendas and minutes should be published; the for developing training provision based on local possibility of public question times should be needs and linked to enterprise development - explored. Regional and local authorities should within the overall coordinating framework of consider establishing joint committees, similar local and regional authorities. in function to Parliamentary select committees,

to which TECs in their area could be 3.3.2 TECs have had a mixed record. Their answerable. Also, in the final analysis, TECs roles in training and economic development must be accountable to their funding have been confused, reflecting the conflicting organisation - the Department of Employment - priorities of different government departments

Working for Change Page 11 for the way in which they spend the £2 billion Central funding should be available to ITOs to worth of public funds they currently receive. In enable them to carry out their work. these ways TECs would be made more genuinely accountable to the business and local 3.3.7 We see the the role of central community for their expenditure of public government as that of providing advice and funds. Once they were fully accountable, we encouragement on training standards and would distribute the proceeds of the Training quality, support for training the unemployed, Levy through them (see 3.2.2). and provision of labour market information on which TECs could draw in making their plans. 3.3.5 We would change the contractual Policy and strategic development in these areas arrangements for funding TECs, reducing can be most effectively handled by a single detailed ministerial controls so that TECs could Department for Education and Training, become more responsive to local requirements merging the current Department for Education and remove anomalies in financial support for with the Training, Enterprise and Education different groups in their localities. Restructured Directorate of the Department of Employment. TECs with rolling funding would then be in a It would of course be essential for this position to plan for the longer term and to Department fully to consult with employers and concentrate on the clearly defined remit of employees in the development of training policy providing skills training to individuals in and strategy, and to maintain close links with employment, and enterprise support to new and the Department of Employment on labour growing local businesses. However, central and market information and advice. local government, rather than TECs, should have responsibility for training the unemployed, 3.3.8 An adult education and training unit restoring the role of colleges of further should be established within the new education. It makes no sense for this Department, with specific responsibility for responsibility to be fragmented among different liaison with local authorities and voluntary agencies. Training of the unemployed could, of organisations, and for targeted promotion course, be sub-contracted to TECs by local campaigns, determining quality criteria and authorities. monitoring adult provision. Additional resources would be made available to local 3.3.6 In addition to the TECs, the role of the authorities for adult education and training (see sector-based Industry Training Organisations is 3.0.5). important in discovering and diffusing good practice through networks which firms use.

Page 12 Working for Change Expanding Employment

4.0.1 Along with policies which maximise objectives. We believe, however, that the aim of employability need to go policies which high employment levels should be written into maximise employment. Both reinforce each the objectives of the Central Bank, as it is for the other. Investment in infrastructure and US Federal Reserve. Without this, monetary investment in education and training provide policy may be unduly restrictive. jobs and build the high-skill, adaptable and competitive workforce and economy needed 4.1.3 We are also anxious to see greater for future success. Neither can succeed on its consistency and continuity in fiscal policy. own. Government therefore needs to take Liberal Democrat policy (set out in Federal action to improve the employment capacity of White Paper 4, Economics for the Future the economy: its ability to generate new jobs (1991)) is based on the belief that over the both in the private and public sectors. Liberal longer run Britain needs to increase investment Democrats place particular stress on in relation to consumption. This means that if encouraging regional and local initiatives as a the necessary levels of investment are to be major source of employment growth; regional funded without inflation savings must increase and local levels of government are much as a proportion of national income. We are better placed to judge and respond to local pledged to a medium term savings target in order circumstances and needs. to achieve this, which implies that, if necessary, we may raise taxes to prevent the economy from 4.1 Investing for the Future overheating.

4.1.4 We are likewise pledged to end the 4.1.1 Whereas the Conservative Government short-termism which is so characteristic of the looks to consumption expenditures to fuel Treasury and the City. Public expenditure economic recovery, the Liberal Democrat commitments to local authorities, hospitals, emphasis is on investment - in new plant and universities, etc should be based on a rolling equipment, in infrastructure, in research and forward commitment so that these bodies can development and in education and training. All make plans and investments for the future, such investment must of course meet the test of confident that they will not find, as happens at environmental sustainability. The proposals set present, that their funding is arbitrarily changed out below represent a mix of macro- and micro- from one financial year to another. The private economic measures which meet these criteria. sector should be encouraged to reinvest a greater Investment in education and training, which share of its profits. The presence of a core of itself generates jobs, has been dealt with in detail independent non-executive directors on plc in Chapter Three. Assistance and encouragement boards, for example, would encourage a more for small and medium sized businesses, which long-term view, as would the adoption of the often offer the best opportunities for new ‘stakeholder’ concept put forward in the recent employment, is covered in Section 4.6. interim report of the RSA’s Tomorrow’s

Company enquiry. 4.1.2 At the macroeconomic level the crucial need is to create a stable economic climate which 4.1.5 In the modern world, there are limits to gives business and government the confidence to the degree to which national economies can make long term decisions. Our commitment to reflate unilaterally. We endorse in principle the an independent Central Bank, both for the UK proposals made in the European Commission’s and for the EU, provides reassurance that White Paper Growth, Competitiveness and monetary policy would be geared to long term Employment (November 1993) for a programme

Working for Change Page 13 of investment in trans-European transport and labour-intensive, helping to create new jobs; an energy networks, telecommunications increase in energy efficiency will boost the information highways and environmental competitive edge of British industry; and there is projects. We condemn the Government’s an expanding new market in pollution control negative response to the paper; we would ensure equipment and environmentally sensitive that Britain played a full part in implementing technology in which domestic businesses can these plans. We further propose a major package thrive. Taxing pollution rather than employment of aid and technical assistance for Eastern and will at the same time help create jobs and Central Europe, particularly in technologies contribute to sustainability. which promote environmental sustainability. This would not only assist the recovery of those 4.1.9 These proposals amount to a substantial economies, and the stability of their increase in public investment. This is crucial to democracies, but boost the recovery of Western long-term success but would also in the short industries and exporters. term help get people back to work. It remains a tragedy that the present Government has both 4.1.6 We would also put in hand a programme squandered the revenue from North Sea oil of public investment in the UK. The present which should have been invested in the country’s Government’s neglect of Britain’s public assets future, and ignored the opportunities for cost- is undermining its future capacity for effective investment during the trough of the employment and prosperity. We would provide recession. The legacy of the Government’s support for transport infrastructure and mismanagement of the economy means that it is construction programmes in education and unlikely that investment could be as high or as health and local authority housing (funded by the rapid as we would wish. Nevertheless, our release of capital receipts). Research, innovation commitment is to increase the proportion of and design should be encouraged in the public GDP committed to such long term, benefit- and private sectors. yielding investment.

4.1.7 We would encourage investments in 4.2 The Social Benefits of technologies which contribute to cleaning up the environment and developing a sustainable Employment lifestyle. As is made clear in Policy Paper 8, Agenda for Sustainability (1994), we believe 4.2.1 A society whose members feel safe from that it is both desirable and feasible that Britain the fear of crime, care for one another and enjoy and other economies shift to a more sustainable a healthy environment is a society that offers a pattern of development. This implies a reduction good quality of life. The present arrangements in energy consumption, a shift from private to for public expenditure calculations make only public modes of transport and an appreciation of inadequate allowances, however, for the the value (as well as pleasure) to be derived environmental effects of policy decisions and from the biodiversity of the planet. Investment very little for such factors as crime, vandalism will be required in areas such as home and the results of social neglect. In many cases insulation, public transport, sewage and water this is very clearly counterproductive: wards facilities and the active promotion of research with desperately overworked nurses, unstaffed into clean (energy efficient, non-polluting) railway stations and housing estates without technologies. A shift in the burden of taxation caretakers can be inhumane and often dangerous from employment to pollution and resource places. In many instances, as in the last two depletion is necessary to create the appropriate examples, staffing reductions encourage incentives (see 5.1.6). opportunistic crime and vandalism, and may well cost more in the long run in maintenance 4.1.8 These moves towards sustainability will and repair and revenue foregone than the savings help, not hinder, economic prosperity. obtained from lower staff costs. Environmental protection projects tend to be

Page 14 Working for Change 4.2.2 Liberal Democrats believe that revitalise local economies, spreading prosperity government should adopt a holistic approach, and generating employment. taking full account of the social and environmental impact of its programmes. Public 4.3.3 We propose the creation of a federal sector programmes, at national, regional and framework of government for the UK, within local levels, therefore need to be subjected to which as much power as feasible is exercised by social and environmental cost-benefit analysis Scottish, Welsh and English Regional studies, showing the uncosted benefits (and parliaments. Power should be further costs) of a given item of provision. By ignoring decentralised to most-purpose local authorities, these effects, current public expenditure and to lower tier neighbourhood councils, based calculations are effectively biased towards on natural communities and the wishes of local savings costs, usually of labour, irrespective of people. Elections to all these bodies would be the resulting disbenefits. At the same time as carried out by proportional representation, ensuring that public money was used efficiently, ensuring that they properly reflected the this would also create worthwhile jobs. communities they were elected to serve. (See Employing caretakers in council house blocks, further in Federal White Paper 6, Here We for example, instead of merely fitting entry Stand (1993).) phones, would reduce vandalism and maintenance costs as well as providing a better 4.3.4 National, regional and local authorities service. would be responsible for raising much of their income from their own sources - which implies 4.3 Regional and Local the decentralisation of significant powers over taxation. This would both ensure that the Economies authorities were genuinely accountable for their spending decisions, and help unlock the potential 4.3.1 One of the major problems of the UK is and creativity of local communities which is now the relative lack of dynamism of its local and bottled up by the dead hand of Treasury control. regional economies. In most western nations, Our proposals for investment in infrastructure autonomous regional and local governments (see 4.1), and encouragement for the dispersal of enable and encourage local communities to public agencies and businesses, in part through innovate, to mobilise their resources and to harnessing the potential of distance working (see create jobs. In federal countries like Germany 5.4.4), would also help to bring about greater and the USA much of the effort to create new regional independence and an economy less jobs is undertaken at state and local level. Local centred on South East England. employment initiatives and partnerships between elected local authorities and the private and 4.3.5 The system of finance for industry voluntary sectors are among the most promising should similarly be decentralised. EU regional approaches. In Britain, centralisation of control funds should be used for their intended purpose over local government has killed much of this of stimulating new development to reduce diversity and left little or no financial discretion regional inequalities, not to finance UK in the hands of local bodies. As a result, local expenditure which has already been initiative and enterprise has been stifled. programmed. Legislation should be introduced to enable local authorities, individually or 4.3.2 Unleashing the power, imagination and jointly, to invest more widely in local jobs and commitment which lie dormant in Britain’s services; spending limits should be raised to communities is essential for long term economic allow them to provide matching funds for EU recovery. Liberal Democrats therefore aim to finance. decentralise political power throughout the UK. Not only will this regenerate British democracy, 4.3.6 There is currently a plethora of allowing ordinary citizens to participate in the agencies, authorities and schemes operating at institutions which govern their lives; it will also regional and local level to promote employment,

Working for Change Page 15 training and enterprise. Increasingly since 1979, coordinating their approach to the EU; we central government has channelled much of its welcome and encourage this development. spending on local economic development through schemes which it can directly control or 4.4.3 Guided by a regional council drawn through non-accountable quangos such as Urban from elected county and local councillors, RDAs Development Corporations. In contrast, we would consult fully with business, education and believe that elected regional and local authorities employee representatives in drawing up and are generally in the best position to oversee local implementing a regional economic development economic development and respond to the needs strategy. They would be responsible for: of local industry. While there is a case for specific agencies, such as urban development • Taking over the work of the recently- corporations or local enterprise agencies, to established Integrated Regional Offices, bring together public, private and voluntary thereby making regionally based civil sectors, in general we believe that elected and servants accountable to their regions. accountable bodies should take the lead role on economic development. • Administering and reforming the Single Regeneration Budgets, currently controlled 4.4 Regional Initiatives by the civil service regional directors.

• Liaising directly with the European 4.4.1 Liberal Democrats’ first priority in the Commission to ensure that available funding decentralisation of power is home rule for was fully taken up. Scotland and Wales. We would also create the framework for regional government throughout • Channelling funds to local TECs and England, but we recognise that not every region Business Links and ensuring that their plans might wish to take advantage of it at once. In all took account of the regional strategy. areas in which regional government was not set up immediately we would therefore establish • Developing regional inward investment regional development agencies (RDAs). strategies - incorporating the inward Modelled on the successful experience of the investment agencies currently funded by the original Scottish and Welsh Development DTI - to promote regional investment Agencies, the Northern Development Company, strengths and identify and assemble available Lancashire Enterprises and similar bodies, land for development purposes. RDAs would be responsible for overseeing and coordinating economic development in their • Facilitating technology transfer and regions, adopting structures and mechanisms cooperation between local small businesses appropriate to local needs. and higher education institutions in

marketing, research and development. 4.4.2 Local authorities and businesses are increasingly realising the disadvantages of the • Taking initiatives to develop new regional UK’s lack of a regional tier of government. sources of finance and harnessing the These derive both from the inability of either investment powers of local authorities, central or local government to guide effective enabling local savings to be used to finance regional development and from impaired new and expanding local and regional communication with the European Union, all of ventures through regional equity, loan and whose larger member states possess a regional banking systems. tier. Much of the EU’s development funds are intended to be routed through regions, and often Many of these activities are explained at more they are dependent on matching funds, which length in regard to urban areas in Policy Paper UK government policies do not allow. Regional 2, Reclaiming the City (1994). local authority groupings are increasingly

Page 16 Working for Change 4.4.4 We envisage RDAs only as interim • Provide location advice and facilities, structures until elected regional authorities are including where possible access to land and established. Once this was achieved, RDAs premises, for developers coming into the would be absorbed as economic development locality to create employment. departments of the regional governments. 4.6 Small Firms 4.5 Local Action 4.6.1 Local employment initiatives will be far 4.5.1 Local initiatives and resources must be more effective in bringing down unemployment mobilised to create effective employment and if they are associated with national measures to training initiatives, creating high quality jobs and help small and medium sized enterprises. Small increasing local employability. To this end, local firms generate three quarters of all new jobs in authorities should be given statutory the UK. Firms employing 25 people or less responsibility for coordinating the framework for account for 31% of private sector employment, local economic development, delivered in while a further 38% are in firms with between partnership with the private and voluntary 25 and 200. The number of self employed, many sectors and with restructured TECs (see 3.3). of whom start small firms as they take on Programmes should be delivered at the lowest employees, has been growing rapidly. effective level with maximum local flexibility. 4.6.2 The small firms sector is dynamic but 4.5.2 Within this framework, the primary volatile; some, though not enough, grow to objectives of local employment policies should become new medium sized businesses, playing a be to: key role in regional economic growth as well as acting as suppliers of larger firms and sources of • Create a strategic partnership forum in which innovation. Many small firms develop as niche the public, private and voluntary sectors can providers of goods or services; in Japan, for jointly decide economic strategies and example, two thirds of jobs are in small firms implement proposals. that provide inputs to larger ones. Small firms inject competition into the market while • Raise the skill levels of the local workforce, providing a base for economic growth; one of with close cooperation between TECs, local the elements which attracts new large firms into authorities, schools, colleges and employers. an area is the existence of small firms capable of supplying them. Where they do not exist, a • Enhance the ability of local small and larger firm may even develop a strategy to create medium sized businesses to develop, market them, as has Nissan in North East England. The and export their goods and services. smallest of small firms, the self-employed, have the advantage of individuality and flexibility. • Focus assistance on areas of greatest local 4.6.3 Small firms do, however, suffer from a need, generating new employment number of problems which their larger opportunities and supporting those most counterparts do not. Government regulations, for affected by unemployment and deprivation; example, impose a relatively greater burden on this includes administering community small businesses. Small firms have much greater employment schemes for the long term difficulty with access to capital and finance; unemployed (see 5.2.4). with little market power, they are at the mercy of the banks, their customers, and their suppliers. • Assist and empower local communities and They suffer particularly from the problems of voluntary bodies to develop their own late payment of debt. The various government employment initiatives - such as community schemes designed to help small businesses have businesses or Local Exchange and Trading in general failed to have much, if any, impact. Schemes - and regeneration schemes. We would act to tackle these problems.

Working for Change Page 17 4.6.4 For many small firms, the administrative significant numbers of new jobs. Efforts need to burdens of PAYE, national insurance be made to identify and dismantle the barriers to contributions, statutory sick pay and maternity growth. Recent research suggests that the best pay provisions are often seen as reasons not to time to encourage the growth of small businesses employ further workers. Our proposed is two to three years after start-up, when they integration of income tax and employees’ NICs are seeking to expand premises, appoint new (see Policy Paper 7, Opportunity and staff and look for new marketing opportunities; Independence for All (1994)) would help reduce we would aim to target intervention to this the administrative burden. The administration of period. A further concept worthy of support is statutory sick pay and maternity pay should be ‘personal business advisers’ trained in diagnostic removed from firms with 25 employees or less. techniques to look at a business and identify the barriers to growth. 4.6.5 The VAT system is a major barrier to growth for small firms, since once the threshold 4.6.9 TECs have an important role to play in is crossed VAT becomes payable on all encouraging small businesses. Many are turnover, including that previously below the developing ‘Business Links’, often in association threshold. We would therefore examine the with local Chambers of Commerce and Local feasibility of a small firms basis for calculating Enterprise Agencies, to provide advice, training VAT, whereby a small business would be able to and other services to local business. We have retain a proportion of net VAT. Where VAT is long favoured the ‘one-stop shop’ concept and paid late, Customs & Excise should charge welcome this belated move towards the interest at no more than commercial rates. strengthening and simplification of local business support services. In some areas, there 4.6.6 We would legislate to make interest may also be a role for Community Enterprise payable on overdue payments owed to Agencies, concentrating on assisting a wider companies and require such payments to be range of enterprise opportunities - such as published in annual reports. In addition, helping local people set up cooperatives or company accounts should include figures on community enterprises, for example, and disputed bills, which are often a way of delaying targeting support on minority ethnic businesses. payment. The Unfair Contract Terms Act, which enables customers to challenge unfair terms 4.6.10 Government, both local and national, is imposed by the suppliers of goods or services, a large consumer of both goods and services and should be extended to protect small businesses can strongly influence the market by this means. dealing with large ones. In the USA, 10% of purchases by government bodies must be from small firms. We believe this 4.6.7 New sources of finance are needed to is a model worth following; public bodies should enable small businesses to survive and thrive. be required to publish details of the firms We would encourage banks to grant loans winning tenders and, where less than 10% of the against the security of future returns, and purchases are accounted for by small local investigate new ways of providing equity. firms, an independent assessor should be Mutual guarantee schemes, in which businesses required to examine the way in which tenders are form consortia to guarantee each other’s loans, put together, as well as the criteria for various are common in continental Europe but rare in the levels of tender. This would ensure that public UK; we would provide assistance and advice in authorities do not create artificial barriers to forming them. small firms trying to compete for their business, and would help to keep money in local areas, 4.6.8 Research shows that only a small sustaining local jobs. proportion of small firms currently generate

Page 18 Working for Change Increasing Flexibility -New Hope for the Unemployed

5.0.1 European economies tend, in general, way to job creation in OECD countries must be to be less flexible than that of the United through improved productivity in firms that States. The US economy produces far more have a solid capacity to innovate and use new jobs than the EU, and Americans who technology effectively.” become unemployed face, on average, much shorter spells out of work. This has been 5.0.4 This, in essence, is the Liberal achieved, however, at the price of much Democrat approach. We explain in Chapter greater levels of inequality. Pay differentials Three how we aim to create a highly skilled are much wider in the USA, and welfare workforce able to produce high value-added benefits are less generous and are withdrawn products. As well as promoting employability, more quickly than in Europe. Unemployment however, education and training also increase is kept down only at the cost of poverty and the flexibility of the labour market: they create a insecurity. workforce capable of responding positively and rapidly to change and innovation, and individual 5.0.2 The approach of the present employees who are able to change jobs and even Government appears to be to try to deregulate careers in response to changing conditions. the labour market ever further, on the assumption that people can ‘price themselves 5.0.5 Labour market flexibility also needs to back into work’ if real wages and non-wage be increased through: costs are lowered. But without much higher levels of investment in education and training, • Removing obstacles to employment and job the result is likely to be a widening divide mobility - primarily those resulting from the between those in well-paid full-time work and tax and benefits systems. those in poorly-paid, ill-protected and precarious employment. Any new jobs created are likely to • Providing mechanisms to bring the long term be part-time and temporary. unemployed back to the labour market.

5.0.3 Moreover, this approach is self- • Ensuring a social and economic environment defeating; the costs of Britain’s social in which people can switch jobs without fear infrastructure - including employment of protracted unemployment. protection, social security, and health care - are so much higher than those of the newly • Encouraging flexible patterns of work, industrialising countries of South East Asia that including work sharing and distance working. labour costs cannot realistically be driven down far enough to allow for real competition. Nor • Providing a framework of basic employment would this create a society in which most people rights which reassures people that greater would wish to live. As the 1994 OECD Jobs flexibility does not mean increased Study stated, “new jobs, particularly in exploitation (see Chapter Seven). tradable goods industries, will increasingly have high knowledge requirements. In a • Encouraging the decentralisation of wage globalised world, OECD countries cannot cling bargaining, subject to appropriate protection to low-wage-labour products in the face of for the low paid (see Chapter Eight). competition from low wage countries. The main

Working for Change Page 19 5.1 Tax and Benefits Policy: relief on the costs of child care by an approved nursery or childminder. Creating Opportunities 5.1.4 Flexibility would be encouraged further 5.1.1 The tax and benefits system is in need of by the introduction of a flexible ‘decade of comprehensive reform, not least to reflect the retirement’ to enable older people to start structure of today’s labour market. The system drawing a pension at any time between the ages currently tends to create dependency rather than of 60 and 70, receiving a higher pension the later encourage independence. High marginal tax they started to draw it. We would also ensure rates and benefit tapers for individuals and that employees changing jobs did so without fear families living on benefits positively discourage of reduction in pension rights. (See Federal them from taking paid jobs, especially part-time Green Paper 31, Retirement with Dignity work. Liberal Democrats propose to reform the (1993)). tax and benefits system to help people back into jobs and to remove the disincentive to working. 5.1.5 Tax systems also discourage Our proposals are set out in full in Policy Paper employment. Employers’ national insurance 7, Opportunity and Independence (1994). contributions (NICs) are a tax on jobs which has become proportionately heavier over the last 20 5.1.2 Benefit entitlement should be assessed years compared with income tax. We would on a more flexible basis, so that people with simplify the NIC structure, replacing the current casual jobs would be able to claim benefit more complex pattern of thresholds with a simple easily for periods when they do not earn percentage payment of payroll. This would anything. We propose to replace Income Support remove the incentive to employers to keep their and Family Credit by a single Low Income staff on very low wages (below £57 per week). It Benefit, withdrawn at a taper of 70% of net would also reduce the administrative burden on income. We would end the so-called ‘21 hour employers, as they would simply have to remit a rule’, which currently leads to withdrawal of percentage of their total payroll instead of benefits from anyone studying or being trained computing a contribution for each employee. for more than 21 hours a week while unemployed. 5.1.6 In the longer run, we would shift the burden of taxation from employment to resource 5.1.3 The cost of child care is a major barrier depletion and pollution. In general throughout to taking employment. It can make work the last two decades, Western economies have financially unrewarding, particularly for lone raised taxation on employment and lowered, or parents, trapping many women in failed to raise, taxation on resource use. Yet unemployment. We therefore give a high priority unemployment is far too high and incentives to to helping parents meet the costs of child care. reduce pollution and resource depletion far too We would: low. We therefore propose that taxation of employment - specifically, the level of • Apply to Low Income Benefit the child care employers’ NICs - should be reduced, disregard which the Government has allowed counterbalanced by the introduction of an EU- in calculating Family Credit entitlement. wide energy/carbon tax to ensure that energy users bear the costs of the pollution they cause. • Extend the present tax relief on workplace (See Policy Paper 8, Agenda for Sustainability nurseries to other forms of child care should (1994).) employers wish to offer help in this way. 5.2 Working Benefits • Dependent upon resources, extend this

principle further to offer child care vouchers 5.2.1 The worst social and economic damage to all employees, allowing them to claim tax is caused by long term unemployment. Skills and work habits are lost, confidence destroyed and

Page 20 Working for Change dependency increased. At the same time the long training is essential. The operation of the term unemployed are at a disadvantage in the schemes themselves would benefit from a labour market because employers believe that partnership approach with the private sector, someone out of work for so long is a bad risk; with employers involving themselves in design the process feeds upon itself. Furthermore, their and management, so as to better prepare effective exclusion from the labour market participants for eventual jobs in private firms. means that labour shortages - and inflation - can reappear very quickly with recovery from 5.2.5 The key objective of the Benefit recession, even with high levels of Transfer Programme is to take positive action to unemployment. give the long term unemployed an advantage in the labour market and increase their long term 5.2.2 As a means of reversing this process, employability. Even if some displacement of Liberal Democrats advocate the introduction of existing workers were to occur, the restoration a Benefit Transfer Programme, based on a of hope, confidence and working capacity to proposal originally devised by Professor Dennis individuals who would otherwise be almost Snower. Social security benefits payable to the permanently excluded from the workforce makes long term unemployed (those out of work for it worthwhile, increasing both employability and more than six months) would be converted to employment. The Government’s half-hearted vouchers payable to employers who took them experiment with the idea, in the Workstart pilot on. Based on 1993 figures, the maximum initial schemes introduced in March 1993, is much too value of the voucher would be £150 per week, limited, fails to require training, and offers a reducing by £1.50 for each week of employment, voucher of too low a value. (In fact, on one of thereby avoiding an open-ended commitment. the pilots where the eligibility rules were The cost to the state would be negligible, and relaxed, the results were much more positive.) always less than the total of benefit and tax revenue foregone (an average of £173 per week). 5.3 Increasing Mobility Rather than paying people to stay on the dole, the programme pays them to work. 5.3.1 Employment services, both public and

private, have an important role to play in 5.2.3 To benefit from the scheme, employers increasing the flexibility of the labour market. would have to pay wages at least equal to the Advice and guidance should be available both to value of the voucher. They would only be people changing jobs and to those who are eligible if they proved that the new employees unemployed. Everyone who has not found a job were genuine additions to their workforce, to within one month of becoming unemployed avoid displacement of existing workers. A should have their own named counsellor, whom crucial requirement of the scheme is that they should be able to consult regularly. employers would also be required to provide Adequate funding should be provided to ensure training for the new employees, who may have that the burgeoning adult guidance networks, been so long out of the jobs market that working developed by TECs through the Gateways to habits had been lost. Careful monitoring of the Learning initiative, can deliver a high quality scheme would be essential. service to all parts of Britain.

5.2.4 Although primarily aimed at the private 5.3.2 An inflexible housing market, with a and voluntary sectors, the voucher would also be paucity of rented and council housing, throws up applied to jobs on community programmes, such obstacles to labour mobility and thereby as the current Restart and Community Action employment. Our proposals for the reform of schemes. Additional funds could be provided to housing benefit and mortgage interest relief, set raise wages above benefit levels, with the out in Policy Paper 7, Opportunity and scheme being run by local authorities and public Independence (1994), and for support for and voluntary agencies, with central government partnership housing, described in English Green providing finance. As above, the provision of Paper 6, A Place to Live (1993), will help to

Working for Change Page 21 break down these barriers and enable people to responsibilities - such as mothers with small move more easily to the places where jobs are children. We would therefore directly encourage available. more flexible patterns, job sharing and family- friendly employment practices in the public 5.4 Flexible Working Patterns sector. In the private sector, we would establish the right of employees approaching retirement

age, or with responsibilities for young children, 5.4.1 Today’s employees adopt a much to negotiate a reduction in hours worked or a greater diversity of patterns of employment and career break. work than do their predecessors. Indeed, Britain exhibits a greater range of working patterns than 5.4.4 Flexibility should also be encouraged in any other EU country. Only 10% of British the place of work. The rapid development of employees work the once-standard 40 hours a information and telecommunications technology week, compared to 72% of Spanish workers. now allows up to a million people to ‘telework’

from home or from a neighbourhood centre full- 5.4.2 However, record levels of overtime or part-time, and a further half a million to (paid and unpaid) are still being worked by those telecommute, taking work home occasionally. in secure employment and there is considerable The potential for such ‘distance working’ is scope for new initiatives to reorganise working increasingly being realised: many business and time to create new jobs, improve productivity financial services sector jobs could be carried on and assist individual employees. Flexi-time, in this way, together with administrative and career breaks, job sharing, annualised hours and clerical jobs; 10% of employers currently use other kinds of flexible working patterns should teleworkers. The scope is international; workers be encouraged: they help individuals to live their in Ireland currently process insurance claims lives in the way they choose, and enable from the western USA, operating overnight by employers to experiment with different, and US time. The potential for expanding education, more productive, methods of working. particularly distance learning for adults, is

obvious. 5.4.3 The potential of work sharing is attracting increasing interest. In Germany, 5.4.5 Distance working offers both Volkswagen recently introduced a four-day week opportunities and problems. The opportunities along with a 10% pay cut; no new jobs were include substantial environmental and social created, but the company claimed it had saved benefits from the reduction of time and fuel 31,000 jobs that would otherwise have been spent on commuting, and encouragement for the eliminated. In France, a subsidiary of the growth of communities where people live and computer company Hewlett Packard introduced work in the same area. Problems include a more flexible four-day week for workers and possible health and safety risks and reduced started to run the plant seven days a week round social contact. The practical difficulties of the clock rather than in shifts. Production working from home and looking after children at tripled, employment rose by 20% and earnings the same time are often overlooked. Distance remained unchanged. working can often be more manageable if it

forms only a part of a job or if instead of 5.4.4 There are good reasons for encouraging working from home the distance worker uses a reductions and increased flexibility in working neighbourhood centre (or ‘telecottage’). time. Work sharing can create new jobs, though Government should therefore encourage the only if unit costs are contained; and there may development both of the necessary be productivity gains from changing working telecommunications networks, and of local methods. Many full-time employees would ‘telecottage’ centres providing equipment and prefer to work shorter hours at different times in facilities, and training in their use. their lives, particularly when they have caring

Page 22 Working for Change Citizen’s Service

6.0.1 Liberal Democrats proposed the partnership with the private sector; local establishment of a community volunteer authorities and voluntary organisations would scheme in 1993 (in the paper Facing Up to the organise the scheme. Training would be an Future). Its aim was to break down social important element, as an essential complement to barriers, encourage more citizen involvement our proposals to promote employability and in public service, promote the development of flexibility. social skills and a sense of responsibility and help unemployed people learn skills and boost 6.0.4 Volunteers would receive a basic their self-esteem. It was particularly targeted allowance whilst on Citizen’s Service. Those at young people. who successfully completed a full two years would receive financial help with education or 6.0.2 The new US national community service training courses of their choice, over and above scheme, introduced by the Clinton their existing entitlements; the experience gained administration, has succeeded in building a on the scheme would also count towards various partnership with the private sector to recruit high skills requirements. In due course we would school leavers and young graduates, as well as expect the scheme to be widely taken up, and the young unemployed people from inner cities, and experience gained to be valued by employees and to help meet the costs involved. In some areas employers alike. the number of volunteers exceeds the number of places available. 6.0.5 A recent Community Service Volunteers report estimated that the gross costs of a scheme 6.0.3 Our proposed Citizen’s Service would involving 250,000 young people a year give the opportunity for any individual, but (excluding post-scheme benefits) would be especially young people, to give one or two £773m pa; but taking into account savings from years’ community service for environmental increased employment following involvement, projects, housing renovation, crime prevention or and reduced crime, the net costs fell to only social services - supplementing, not replacing, £300m. Such an investment, we believe, is both existing jobs. It would be promoted and funded worthwhile and necessary. by central government, where possible in

Working for Change Page 23 Citizens at Work

7.0.1 Employability, flexibility and and cooperatively to meet the challenges of employment are all underpinned by the competitive markets. creation of a work environment in which people feel fulfilled in fairly rewarded, 7.0.5 We would codify the laws relating to satisfying jobs that maximise their potential. both employers and employees. Our proposed We therefore aim to build a framework of legal framework would empower employees employment rights and responsibilities which within the workforce, giving them both negative, provides access to consultation, participation or protective, rights enforceable by law, and and, where appropriate, ownership, for all positive rights to information, participation and members of the workforce. training. It would encourage employees to take responsibility for the environment in which they 7.0.2 Not only will this approach help to work. It applies equally to the public and liberate individuals’ talents, it will also voluntary as to the private sectors (with obvious contribute to improving economic performance, exceptions, such as employee share ownership). employability and adaptability. The most For Liberal Democrats, this is part of a new successful companies are those which know how industrial settlement which is as vital for to involve and motivate their employees by economic competitiveness as it is for individual ensuring that they have a real say in decision- fulfilment. making, a share in the ownership of their enterprise and in the profits they help to create. 7.1 Rights and We aim to create a climate in which management and employees come to share a Responsibilities common interest in the future of their enterprise and a joint commitment to success. 7.1.1 Employees’ rights, including the right to a written contract of employment, should exist 7.0.3 This climate is also necessary to for all types of employment: full-time, part-time, underpin our proposals for increasing flexibility casual, temporary, home work etc, where (see Chapter Five). In the name of flexibility, appropriate on a pro rata basis. In a world in some employers have abused their rights by which collective bargaining is becoming less and pressuring employees to switch from a less the norm, individual rights must be the permanent pensionable job to a short-term foundation on which employment protection contract, for example, or by offering only a rests. We welcome the recent House of Lords series of contracts just under the qualifying ruling that longer qualifying periods for certain period for protection against unfair dismissal. employment rights in the case of part timers The framework of employment rights we aim to working for less than 16 hours a week constitute create would encourage flexibility without indirect discrimination. Legislation embodying allowing exploitation. this decision should be introduced as soon as possible. The right to training of adequate 7.0.4 This requires a positive legal framework quality should be an express term of employment which encourages and rewards companies which (see 3.1.5), with a matching obligation on take a long-term view of their profitability; employees to take up opportunities so provided. which have regard to all their stakeholders; and which invest in their workforces as a positive 7.1.2 Dismissal without proper notice should asset. We seek to create an industrial climate in only be lawful on the grounds of gross or which employees are motivated to work flexibly persistent misconduct. Reasons for dismissal should be stated by the employer in writing and

Page 24 Working for Change due notice given after compliance with 7.1.6 Many of the rights we propose would be appropriate disciplinary procedures, including an automatic entitlement if the UK supported the proper employee representation. The qualifying European Community Charter of Fundamental period of service for claims for unfair dismissal Social Rights and its developing Action should be reduced from two years to one. Programme (the ‘Social Charter’). The UK Government has blocked EU directives in a 7.1.3 Continuing efforts must be made to number of important areas, including employee reduce the number of people killed or injured at participation, information and consultation, work and to improve the health of the work protection of part-time and temporary workers, environment. In particular, companies and parental leave and leave for family reasons, individuals breaching health and safety laws maximum working hours, and protection for must have penalties imposed on them young workers, on the grounds that they would commensurate with the gravity of the offence, conflict with its deregulatory policies. including imprisonment. Employees should be empowered to exercise responsibility for 7.1.7 Liberal Democrats believe that the monitoring and improving working conditions; Conservative Government was wrong to opt out but they should also be able to resign from of the Social Protocol of the Maastricht Treaty unsafe work without suffering social security (commonly known as the ‘Social Chapter’). By penalties, as at present. Young workers may so doing, it surrendered UK influence on its need special health and other safeguards. The development. Any British company which Health & Safety Executive should be properly employs significant numbers of workers staffed and funded in both a policing and an overseas will have to abide by its terms in any advisory role. case, and in fact most of Britain’s leading companies already do so. There is no evidence 7.1.4 The current system of redundancy whatsoever that adherence to the Social Chapter payments is in need of reform. It may be would deter inward investment; indeed, the preferable to provide a proportion of the OECD’s recent Employment Outlook 1994 payment in the form of assistance with education flatly contradicts the Conservatives’ view that and training, which would help the employee high labour standards destroy jobs. We would find another job more quickly. Similarly, reverse Britain’s opt-out from the Social payments to those starting a new business could Chapter. be higher. This is a complex area but one worthy of investigation. 7.1.8 We also wish to improve the protection of workers outside the EU. The International 7.1.5 It is not enough to detail employees’ Labour Organisation has worked for 75 years to rights; they must also be effectively enforced. promote effective standards of labour protection. Industrial tribunals must be given sufficient The present Government has given little support resources to act speedily and effectively. In the to its work or to the USA’s proposals to include longer term we would consider establishing a minimum labour standards in trade new Industrial Court to deal with the whole area liberalisation. We would reverse this attitude; we of industrial disputes, replacing the present will cover this topic in depth in our forthcoming Employment Appeal Tribunal and headed by a policy paper on International Trade. senior High Court judge who would be advised by expert industrial members. This would build 7.2 Discrimination in on the experience of specialist Labour Courts in other parts of Europe which have a conciliatory, Employment as well as an enforcement, role. Meanwhile we would provide additional resources for the 7.2.1 No-one should be denied access to Advisory, Conciliatory and Arbitration Service employment or be hindered in their working lives (ACAS), which has recently been forced to cut because of matters which are irrelevant to their back its vital advisory work. ability to carry out their work. In particular, we

Working for Change Page 25 assert the right of people not to suffer 7.2.4 With the comprehensive approach discrimination when seeking work in other suggested above, enforcement, advisory and member states of the EU. People are also monitoring duties would be given to our discriminated against by employers and fellow proposed Human Rights Commission (see employees for reasons which are not relevant to Federal White Paper 6, Here We Stand (1993)). the job in question. This is not only both unjust The approach needed for some problems unique and debilitating for the victim but also to particular forms of discrimination would be economically inefficient. dealt with by specialist sections within the Commission, which would gradually subsume 7.2.2 Discrimination must be tackled in all the CRE and the EOC. areas of life. We agree with the Commission for Racial Equality’s statement that “on its own, the 7.2.5 We would press for the same approach law cannot create good race relations or to be applied throughout the EU. The European change people’s minds. But without good law Commission has attempted to make a start on there will be no change”. The UK currently has race discrimination legislation but the UK legislation against discrimination in employment Government, amongst others, has been hostile. on the basis of gender, race, disability, religion The UK has a higher than average proportion of and trade union membership and non- visible ethnic minorities, the main victims of membership. However, these laws are limited: cross-border discrimination, and has a special the Fair Employment Act (religious duty to press for appropriate laws. discrimination), for example, only applies to Northern Ireland, while quotas for people with 7.2.6 Discrimination on the basis of disability disabilities are not enforced. Denmark has needs a wider approach. We support legislation comprehensive legislation on sexual orientation similar to the 1990 American law, such as the and the USA on disabilities. France has some private member’s bill which recently failed to legislation against age discrimination. The EU pass the House of Commons. Perceived has required its members to adopt a uniform disability - such as HIV infection - should also level of protection against discrimination on the be covered by legislation. basis of gender but there has been little movement towards a comprehensive approach to 7.2.7 Liberal Democrats will continue to call other forms of discrimination. for legislation to promote the above principles. In the meantime, there is much that can be done 7.2.3 Comprehensive legislation is therefore to promote and spread good practice amongst needed in the UK, banning discrimination for employers. In particular, Liberal Democrat reasons unrelated to the job: gender; race; councillors should encourage local authorities to religion; age; sexual orientation; disability; trade carry out a full review of their equal union membership or non-membership; spent opportunities policies to ensure they cover all the criminal convictions (except for specific posts); forms of discrimination discussed above. and political beliefs. The Sex Discrimination Act, the Race Relations Act and the Fair 7.3 Consultation and Employment Act all have the same basic structure and approach, but the last, suitably Participation updated, is the best model for anti-discrimination legislation in the UK. We endorse the CRE’s 7.3.1 As we have stated in Chapter Two, the proposals for strengthening the other two Acts to Liberal Democrat approach centres on ensuring bring them into line, particularly in widening the that all individuals possess the opportunity to scope of the concept of indirect discrimination, discover and develop their own potential. The obliging employers to adopt ethnic monitoring of workplace is one of the most important areas in their workforces and encouraging local which individuals develop their talents, and the authorities to enforce contract compliance. way in which it is organised must therefore be as open and participatory as possible. Not only is

Page 26 Working for Change this beneficial to the individual; it is good for the 7.3.4 We believe in an enabling approach, company too, as firms which fully involve, developing the individual rights of the employee. consult and empower their employees are almost We would therefore introduce legislation to set invariably more successful. Recent studies from out each individual’s entitlements, including, the European Foundation for the Improvement of where appropriate, access to: Living and Working Conditions show the positive relationship between participation and • Information. business performance, and its value in particular in the processes of restructuring and introducing • Consultation. new technology. • Participation in strategic decisions. 7.3.2 We referred in Chapter One to the far- reaching changes in the nature of work over the • Participation in day-to-day decisions. last couple of decades. With the development of new technology, and with a greater emphasis • Profit sharing. upon customer service and quality, companies need to be far more innovative and flexible in • Share ownership. response to greater competitive pressures. Companies which innovate successfully must It is this combination of consultation, use effectively the abilities of employees at all participation and ownership that will best enable levels - which requires full consultation and employees to articulate and exercise their rights participation on their part. Most employees have as citizens at work, and offers companies the a real commitment to making their companies best way to realise the potential and commitment work, and many sound ideas, which sadly are of all their employees. often ignored by more traditional managements.

7.3.3 UK law at present affords employees few formal rights of consultation or We aim to build a framework of participation, even on matters which directly affect their working lives. In Germany, by employment rights and contrast, employees have such formal rights. responsibilities which provides Large companies possess supervisory boards, including employee representatives, which make access to consultation, strategic decisions; this works well not least participation and, where because it means that the onus is on management to promote consensus. All but the smallest appropriate, ownership, for all companies have works councils, through which members of the workforce. employees can contribute to decisions about more detailed issues. The European Commission has proposed a draft Directive which sets out requirements for the establishment of statutory 7.3.5 We do not believe that government works councils and other participatory should impose a detailed single model for a mechanisms for transnational companies. This is participative structure as regards either decision- in the process of adoption by the other 11 making or profit sharing. Industries and member states of the EU through the Social companies possess huge varieties of different Protocol. It will inevitably impinge on activities, traditions and attitudes. The transnational companies headquartered in the legislation should instead guarantee the basic UK, and it is interesting that the CBI, through its rights of an individual employee in each of these European counterpart UNICE, has sought to areas, and establish a mechanism by which influence its contents. employees’ demands could be satisfied in a

Working for Change Page 27 manner most appropriate to their employing organisation. 7.3.9 Co-operative enterprises offer considerable potential for member and employee 7.3.6 The heart of this mechanism would be involvement and are an important part of a an Industrial Partnership Agency, established by modern mixed economy. We see a much statute either as a separate body or as an enhanced role for a relaunched and well- extension of ACAS. Employees could apply to resourced Co-operative Development Agency, the Agency if they were dissatisfied with existing operating on a regional basis to stimulate the arrangements for share ownership, participation, establishment of new co-operative enterprises. consultation and so on. The IPA would assist Community Enterprise Agencies and Business and advise employers in drawing up, together Links should encourage the establishment of with their workforces, appropriate schemes to small locally-based co-ops, which assist fulfil the rights set out above. retention of capital in the local economy and stronger commitment to job retention as well as 7.3.7 The IPA would examine the proposed fuller participation. Credit unions revive the co- schemes against the criteria established in the operative spirit and social functions of the old legislation. It would exercise a substantial degree Trustee Savings Bank movement, helping less of flexibility in approving proposed structures, financially strong communities to manage their taking account of the practicalities of assuring finances collectively; we would encourage their employee rights within a particular organisation establishment regionally and locally. given its size and characteristics, and the changing patterns of work and responsibility 7.4 Profit Sharing and which we identified above in Chapter One. As experience in the area developed, we would hope Employee Share to see appropriate systems extended to more and Ownership more organisations, whatever their size or circumstances. Schemes would have to be 7.4.1 Liberal Democrats have always agreed by management and employees; in the supported payment of profit-related cash event of deadlock the IPA would arbitrate. benefits, provided that all employees are eligible Ultimate failure to comply would enable the IPA and payments are not made in lieu of a basic to impose a structure on the organisation. wage. A good profit sharing scheme can increase employees’ sense of identification, raise cost awareness, provide tax relief, help to attract staff, reduce the attraction of industrial action Employee share ownership can and reward employees without raising costs. We improve economic performance would raise the present restriction on tax exemption for profit-related pay and consider where it is accompanied by greater exempting payments made under a profit-sharing participation. scheme from employers’ NICs.

7.4.2 The concept of employees owning a stake in the company which employs them is an 7.3.8 As stated above (7.1.7), Liberal important extension of the principle of Democrats believe that the UK should opt in to participation. There is now a wide consensus the provisions of the EU’s Social Protocol. The that this is a desirable objective, and that it structures for consultation and participation should be given assistance by favourable tax agreed under the IPA procedure would therefore treatment. Much credit in this area is due to the need to conform with EU legislation. Once opted farsightedness of the Liberal Party, starting with in, however, the UK would be able to argue for the 1929 Yellow Book, and of pioneering the further development of the non-prescriptive rights-based approach we advocate here.

Page 28 Working for Change employers such as the John Lewis Partnership 7.4.7 Executive share option schemes are and the Scott Bader Commonwealth. The most designed as an incentive for senior management; significant recent advance in the UK came from they do not involve the same spread of share a Liberal initiative during the Lib-Lab Pact, ownership as all-employee schemes, and in fact when the 1978 Finance Act introduced tax relief contribute to the increasing divergence of for approved employee share ownership earnings. We regret the fact that their operation schemes. The number of all-employee share and concomitant tax reliefs were not made schemes approved by the Inland Revenue is now conditional on a company either operating them just over 2,400 (July 1994), with a further 5,800 on a broad basis, or also operating one of the executive share option schemes for the exclusive broadly-based schemes, particularly as five of or primary benefit of management. these executive schemes have been approved for every two broadly-based schemes. We would 7.4.3 Recent studies have shown that the change the law to include this requirement. benefits of employee share ownership schemes can be quite substantial. In one survey, profit- 7.4.8 We also see a useful role for employee sharing firms as a group outperformed their non- share ownership trusts. This is particularly so profit sharing counterparts over a range of nine when there is a significant change in the performance indicators. However, such studies, ownership of an unquoted company (whether or along with others in the US, also show that not it involves flotation), and it is desired to vest schemes only improve a company’s performance ownership of the share in a vehicle which where they are accompanied by greater benefits employees generally. We would add to involvement of the workforce; American the existing tax incentives by encouraging companies that simultaneously instituted owners to transfer businesses to their employees, participation plans grew three or four times rather than selling them on the market. This will faster than companies that did not. be assisted by our proposal (in Policy Paper 7, Opportunity and Independence for All (1994)) 7.4.4 Our proposals are therefore aimed at to replace inheritance tax duty with an two targets: increasing the numbers of employee accessions tax on the beneficiaries, thus shareholders and increasing employee encouraging the wider distribution of assets. We participation. Participation is covered in Section would also, in appropriate circumstances (eg a 7.3; our proposals to increase employee share management buy-out), encourage the spreading ownership are set out here. of ownership among the general body of employees rather than management alone. 7.4.5 The limits on the value of shares which may be made available to an employee in any 7.5 The Role of Trade Unions year under an employee share ownership scheme should be increased from £3,000 to £5,000 or 7.5.1 We believe that the proposals put 10% of salary (whichever is the higher); the cut- forward in this paper to promote consultation, off point should remain at £8,000. participation and ownership will act effectively

for the protection of the rights of every 7.4.6 Changes should be made to the present employee. At the same time, Liberal Democrats guidelines of institutional investors which believe firmly in the right of free association. prevent more than 5% of pre-tax profits per annum going into employee shares, and share 7.5.2 Employees must therefore have the right dilution exceeding 1% a year. We would not to join, or not to join, an independent trade union permit the Stock Exchange to continue to impose of their choice. No prospective employee should its present requirement that broadly-based be refused employment because that employee employee share schemes must have shareholder does, or does not, belong to a particular union; approval, and we would thereby remove the nor any actual employee be dismissed or power of institutional investors to inhibit such otherwise discriminated against by virtue of such schemes. membership or non-membership.

Working for Change Page 29 7.5.3 We have consistently opposed the legislation stipulating various internal union Government’s 1984 decision to forbid workers practices with a simpler system in which a union at GCHQ the right to organise in a trade union would have to comply with basic criteria on of their choice; under our proposals, this action internal democracy (such as holding elections for would have been unlawful. The recently- executive committees), in addition to existing introduced right of employers to distinguish criteria on other matters, before it could be between union activists and others when making certified as an independent trade union. We dismissal decisions is contrary to the principle of would immediately repeal the recent requirement freedom of association and under our proposals for regular reauthorisation of the deduction at for tackling discrimination (see 7.2.3) would be source of trade union subscriptions (‘check- outlawed. The practice in some companies of off’). offering monetary inducements for non- membership of unions should similarly be made 7.5.7 The principle that trade unions should unlawful, and it should also be unlawful for be responsible for their actions, to the public in employers to discriminate against union general as well as to their members and the members in pay agreements, as permitted under businesses in which those members work, has a the Government’s 1993 Act. necessary place. Not even lip service was paid to it during the heyday of union power in the 7.5.4 Whereas recognised trade unions 1970s. However, the present Conservative currently possess some rights, eg of consultation Government has gone too far the other way in over redundancy, there is at present no making trade unions responsible for requirement on employers to grant recognition unauthorised action, including unofficial strikes, even where the workforce wishes it. We would while limiting their ability to impose discipline. restore to ACAS the power to deal with In general terms, internal discipline is part of the recognition claims and to organise employee necessary working of a trade union and a matter ballots. Where a simple majority of all for internal decision. We would review this employees in a workplace elect by secret ballot aspect of the law on industrial action in to be represented by an independent trade union, consultation with the TUC and employers’ the employer should be legally obliged to representatives; but we would do so in the recognise that union. context of upholding the key requirement of prior approval by the members concerned in a 7.5.5 The value of trade unions is best postal ballot. assessed by those who are eligible to join them; and the better the service the unions provide, the 7.5.8 All trade unions, either collectively greater the number of members they will attract. through the TUC or individually, should be able Unions should have an important role to play in to express their opinions on matters of concern many areas of employment, including, for to their members. Their internal structures example, monitoring training (see Chapter should be such that members play a full part in Three), and providing legal advice and the formulation of those expressions of opinion. representation and individual services to In that sense, trades unions are involved in the members. general political process and their members expect them to be able to advise all parties and 7.5.6 Trade unions must be fully democratic to pursue their aspirations at both national and institutions, under the control of their members. international levels. Hitherto, unions have been While a framework of law is necessary to this too exclusively linked with one party. Liberal end, the present legislation has become far too Democrats welcome the new approach favoured specific and onerous, taking over matters which by the TUC in entering into discussion with all should be decided by an active union political parties, and are happy to play a full membership. We would aim to replace detailed part in this process.

Page 30 Working for Change Pay

8.0.1 In a competitive market economy, pay out in each company or sector, and we welcome is largely determined by market forces, the general trend towards decentralisation of pay reflecting the demand for labour and the bargaining. Action by government, however, is supply available to meet it in different labour needed in three areas: markets. In general, there is no case for government interference. But the market does • Low pay, together with other cases where not always work effectively and there are statutory protection may be needed. many instances of market failure. Even where there are not, market outcomes may not • Public sector pay, where government is the always meet our objectives of fairness and employer or paymaster. social justice. • More widely, the creation of a climate in 8.0.2 Several features appear unfair in the which pay relativities can be considered existing distribution of earned incomes, constructively by employers and employees especially: with a better understanding of underlying factors and general economic effects. • The growing gap between the incomes of the lowest paid and those of the highest paid; 8.1 Low Pay between 1979 and 1993, average earnings for

the poorest 10% of workers in full-time “It is a serious national evil that any class of employment rose by 7% in real terms, His Majesty’s subjects receive less than a living whereas those for the highest paid 10% rose wage in return for their utmost exertions. It was by 48%. formerly supposed that the workings of supply

and demand would naturally regulate or • Twenty years after the Equal Pay Act, eliminate that evil .... But where you have .... no women’s average earnings remain well below organisation, no parity of bargaining, the good those of men, demonstrating continuing employer is undercut by the bad and the bad is inequality in the labour market. undercut by the worst ....”

Winston Churchill MP, • In many cases, workers whose jobs are President of the Board of Trade, April 1909 broadly comparable in terms of

responsibility, skill or risk receive widely 8.1.1 Liberal Democrats can take pride in the different rewards. achievement of Churchill, and the Liberal

Government in which he served, in introducing a 8.0.3 Public action can help to remedy market comprehensive system of wage protection. The failures stemming from lack of information in bodies he created, the Wages Councils, included the labour market, or inequalities arising from employers’ and union representatives together lack of access to training; see our proposals with independent members, and set minimum above in Chapters Five and Three. Historically, rates of pay in a range of low paid or poorly incomes policies have sometimes been used to organised industries. The Councils were backed promote a fairer distribution of pay, but we do by a central government inspectorate. not believe these would be either feasible or desirable in present circumstances. In the main, 8.1.2 The Wages Councils operated acceptable standards of pay have to be worked successfully for over 70 years, but were whittled

Working for Change Page 31 down during the 1980s, and then in 1993 of pay (MHR) across the whole economy. abolished (with the exception, at least Option B builds on the Wages Council approach temporarily, of the Agricultural Wages Board), by using the Low Pay Commission to tackle low by the Conservative Government. At that point, pay and exploitation in particular sectors or the Councils’ prescribed minimum rates varied companies where the need for it is identified. between £2.70 and £3.20 per hour for adults over 21 - rather less than half the median rate of Option A hourly earnings for all adult workers. They covered two million employees, mostly in shops, 8.1.5A After research and consultation with catering and textiles; a further estimated half a representatives of employers and employees, the million low paid workers in occupations such as Low Pay Commission would recommend a care assistants, cleaners, laundry workers or regionally-varied minimum haourly rate security guards were not covered by the system. applicable to all adults in paid employment, with Latterly government had so reduced the numbers a separeate ( and lower ) rate for those under 18. of Wages Inspectors that the law went largely The Commission would base its initial unenforced. recommendations on the average level of former Wages Council minimum rates, uprated as 8.1.3 There is no doubt that low pay is one of appropriate. The MHR would then be reviewed the main causes of poverty in the UK today, and annually against inflation, with periodic reviews cases of extreme exploitation remain. In April at less frequent intervals in the light of general 1993, almost half a million workers were paid economic trends. US experience suggests that, less than £3 per hour. The great majority of provided the rate is set at a relistic level ( the US workers in low paid jobs are women and a munimum rate is about one third the average for substantial proportion are from the ethnic manufacturing jobs). it is unlikely to lead either minorities - groups which are for various to significant unemployment through higher reasons in a vulnerable and disadvantaged labour costs, or to higher inflation. position in the labour market. Liberal Democrats believe that employees deserve protection from Option B acute exploitation of this kind, and employers should be prevented from relying on state 8.1.5B This option builds on our traditional benefits to replace wages. Low pay also harms support for the Wages Councils, updating and overall economic performance. The position of streamlining it. The Low Pay Commission good employers can be undermined by would have powers to investigate any industrail competition from firms using very badly paid sector or firm in which it believed, on the labour. Very low wages lead to rapid movement evidence presented to it, that therer was of labour (high frictional unemployment), and exploitation due to low pay. It would then there is no incentive for either employer or recommend action, including the imposition of a employee to train for skills. minimuim hourly rate for pay levels in that sector or fim, varied regionally where 8.1.4 Our earlier policy (in Federal Green appropriate. The prospect of a Low Pay Paper 16, Citizens at Work (1990)) was to Commission investigation could, we believe, act support the reinforcement and extension of the as an incentive to employers to raise Wages Councils system. This proposal predated uunacceptably low wages. The reports of the their abolition, however, and it is necessary now Commission would be submitted directly to and to consider what arrangements would best meet debated by Parliament. If the Government present needs. This paper presents two options wished to oppose their acceptatnce, the Minister for decision by Conference. Both propose the could not do so without the agreement of establishment of a Low Pay Commission, as a Parliament on a specific resolution. division of our proposed Industrial Partnership Agency or ACAS (see Chapter Seven). Option A 8.1.6 Option A would have the advantage of involves setting a regional minimum hourly rate comprehensive coverage, and it would avoid

Page 32 Working for Change uncertainty about employees in borderline become a low wage, low skill economy. Coupled activities. However, it might have little or no with our policy proposals to improve the application in wide sectors of the economy, flexibility of the labour market, to boost unduly extending the scope of legislation. Option employability through raising standards of B would be in line with the Wages Council education and training and to end discrimination tradition of careful investigation of the in employment, we are confident that this circumstances of different sectors, varying the approach will help to counter exploitation in provision accordingly. However, administration work. might be complicated by borderline questions. 8.2 Other Issues for Provisions Common to Both Options Legislation 8.1.7 Whichever option is chosen, account must be taken of regional labour markets. There Transfer of Undertakings (Protection of are significant regional differences in living costs Employment) Regulations (TUPE) and economic conditions. In the short run, the Low Pay Commission should be able to 8.2.1 European law requires that, if there is a recommend regionally varied rates after takeover or other change of ownership of a consultation with RDAs and regional business, employees keep their existing pay and representatives of employers, employees and conditions of employment unless and until their local authorities. Once Scottish, Welsh and contracts are properly renegotiated, and must be English Regional governments were established, fully consulted over the transfer. We welcome it would be open to them to decide their own the European Court of Justice decision (June rates, subject to nationally-agreed minima. 1994) that this extends to employees whose employing authority is privatised or their work is 8.1.8 As regards enforcement, the regional contracted out, and that the UK Government was MHR would become an implied term of any wrong not to enforce it in this way. We believe employment contract where a lower hourly rate that employees, both in the private and public currently applied and would thus be deemed to sectors, should not be worse off simply because be substituted for it. Any employee or group of of the transfer of a business to a new owner. employees paid below the regional MHR would be able to apply to an Industrial Tribunal to be Fair Wages Clause in Public paid at that level. Pending the hearing of such an Authority Contracts application those applying would be automatically protected against unfair dismissal. 8.2.2 From 1916 to 1988, public authorities Provisions of this kind, together with extensive were required to include, in every contract for publicity, should be sufficiently effective to building works, a clause requiring the contractor make an official inspectorate unnecessary. to pay rates at least equal to those negotiated in the industry or (in default of a negotiated 8.1.9 By helping to prevent extreme agreement) the rates prevailing in that industry exploitation, this approach enables employees to in the locality. Since 1988, however, public see a flexible labour market more as an authorities have not been allowed to include such opportunity and less as a threat, while providing a clause in contracts even if they wish to do so. a method of tackling poverty amongst the We believe that local authorities should be employed, and particularly amongst women, Just allowed this option both in building and other as importantly, it provides some protection from contracts. unfair competition for good employers, who pay reasonable rates and provide proper training. Equal Pay Equally, a minimum rate is likely to provide a spur to firms to employ workers more 8.2.3 Since the original legislation was passed effectively, countering the trend for Britain to in the 1970s, progress towards equal pay has

Working for Change Page 33 been disappointingly slow. Regulations were companies, where measures such as sales targets introduced in the early 1980s under pressure are readily available, its hasty introduction to from the European Community to facilitate parts of the public sector has been handled claims based on ‘work of equal value’ but they insensitively and has tended to be are unnecessarily complex, expensive and time- counterproductive and divisive. Inappropriate consuming to invoke, so that frequently several targets, and the difficulty of capturing the years pass before judgements are obtained. quality of the service provided, have sometimes impaired service quality (for example, traffic 8.2.4 We would review these procedures with wardens issuing tickets before parking times the aim of simplifying them and speeding up expire to meet their performance targets). their operation. As many jobs performed by Performance in the public sector may often be women are relatively low paid, our proposals in improved more effectively by better standards of Section 8.1 would also help to raise rates of pay management, training, communications and job for many women, especially in part time and design. Where performance-related pay operates, casual work, and thus reduce the gap between it must be applied on a fair, open and consistent their earnings and those of men. basis and be accompanied by training in performance management skills. 8.3 Public Sector Pay 8.3.4 Public service pay and management

need to be seen as a coherent operation in which 8.3.1 The pay of employees in public services, the benefits of good standards of pay and whether in central or local government or in conditions are justified by effective procedures other bodies dependent on public funding, will for performance appraisal and discipline. It is always remain the ultimate responsibility of also essential that arrangements for consultation government as employer and paymaster. Pay and participation in the public sector should as decisions do not have to be taken centrally, far as possible match our proposals for the however; local pay bargaining may well be private sector (see Chapter Seven). appropriate for agencies, especially if the service is one in which competition and genuine performance measures can properly be 8.4 Pay and the Public introduced. Decentralised bargaining could also Interest be a consequence of home rule and decentralised government. 8.4.1 Outside the publicly funded sector, pay

is essentially a matter for determination between 8.3.2 Most of the public sector will continue employers and employees. The decentralisation to consist of large groups of people with broadly of pay bargaining and increased labour market comparable grading and standards of entry flexibility have reduced, though not eliminated, (doctors and dentists, nurses, teachers and the inherent tendency of the UK economy others). We favour the present system of towards wage-push inflation. Nevertheless, as negotiations guided by the work of pay review the economy moves out of recession, there is a bodies. To improve their effectiveness, we would need for employers and employees to take link them together more closely and provide a account of the inflationary consequences of pay common research capacity able to survey pay settlements which are not justified by movements and changes in pay structure across productivity gains. the whole economy. Successive governments have often compromised the process by ignoring 8.4.2 Pay issues need to be discussed as part or phasing the recommendations of review of a wider debate on employment, economic bodies. This is deplorable: an effective and well development, taxation and public expenditure, motivated public service is essential to the taking place in, among other bodies, a achievement of most policy goals. reconstituted National Economic Development 8.3.3 Whilst various forms of performance Council (see Federal White Paper 4, Economics related pay have operated successfully in private

Page 34 Working for Change for the Future (1991)). This would be attracted criticism even from the Prime Minister, underpinned by a government-sponsored who has called for restraint on ‘excessive programme of regular research into pay trends, salaries’ on several occasions but disclaimed any income distribution and related matters, intention of doing anything about it. commissioned from independent research institutes, economic and pay research bodies and 8.4.4 Liberal Democrats do not share his carried out in conjunction with public sector pay approach. Taxation policy should be applied research and periodic reviews of the MHR. more progressively, with higher top rates of income tax (see Policy Paper 7, Opportunity 8.4.3 We share the widespread public concern and Independence for All (1994)). In addition, over growing inequality in the distribution of Companies Act requirements should be extended earned incomes. Our proposals for low pay to provide for the publication of much more would improve the position of the very lowest comprehensive pay and benefits information in paid but would not affect the current pattern of respect of directors and senior executives. This very high salaries paid to chairmen and senior should be accompanied by publication of the executives of many major companies (including lowest hourly rate applicable in the company. privatised undertakings), usually accompanied Salary and other contract terms for directors and by substantial additional benefits. In 1993, top senior executives should be subject to approval directors’ pay rose by 25%, nearly seven times by company general meetings. the rate of increase for all earnings. This has

Working for Change Page 35 This Paper has been approved for debate by the Federal Conference by the Federal Policy Committee under the terms of Article 5.4 of the Federal Constitution. Within the policy-making procedure of the Liberal Democrats, the Federal Party determines the policy of the Party in those areas which might reasonably be expected to fall within the remit of the federal institutions in the context of a federal United Kingdom. The Party in England, the Scottish Liberal Democrats and the Welsh Liberal Democrats determine the policy of the Party on all other issues, except that any or all of them may confer this power upon the Federal Party in any specified area or areas. If approved by Conference, this paper will form the policy of the Federal Party.

Many of the policy papers published by the Liberal Democrats imply modifications to existing government public expenditure priorities. We recognise that it may not be possible to achieve all these proposals in the lifetime of one Parliament. We intend to publish a costings programme, setting out our priorities across all policy areas, closer to the next general election.

Working Group on Employment Policy Shirley Williams (Chair) Norman Evans Steve Palmer Peter Brook (Vice Chair) Don Foster MP Susette Palmer Michael Smart (Vice Chair) Tudor Gates Viv Rayner Lord Beaumont Philip Goldenberg Cllr Rob Renold Paddy Beck Frank Griffiths Lord Rochester Viv Bingham Cllr David Howarth Margaret Sharp Cheryl Brook Cllr Richard Kemp Philip Vince Alastair Burns David Layton Perry Walker Alex Carlile MP Cllr Clive Lloyd Ian Catty Ken McArthur Chris Curson Judith Marquand Staff: Joan Dawson Jeanie Matthew Duncan Brack Paul Ekins Nick Nicol Gareth Roberts

Note: Membership of the Working Group should not be taken to indicate that every member necessarily agrees with every section or every proposal in this Paper. The Working Group would like to record its thanks for the contributions and comments received from the wide range of individuals and organisations involved in business, employment, training, education, research and the voluntary sector who talked to and gave presentations to the Group, both in London and in a series of ‘listening days’ organised in the regions and nations of Britain.

Comments on the paper are welcome and should be addressed to: Shirley Williams, c/o Policy Unit, Liberal Democrats, 4 Cowley Street, London SW1P 3NB.

Policy Paper No 9 ISBN No: 1 85187 251 5 © AUGUST 1994

Further copies of this booklet may be obtained, price £4.00, from Liberal Democrat Publications Limited, 8 Fordington Green, Dorchester, Dorset, DT1 1GB. Please add 20% for postage and packing. Telephone orders are welcome from ACCESS and VISA cardholders: tel. (0305) 264647.

Published on behalf of the Liberal Democrats, 4 Cowley Street, London, SW1P 3NB, by Liberal Democrat Publications Limited.

Layout and design by Mike Cooper, 25 Orchard Road, Sutton, SM1 2QA. Tel: 081 643 2964.

Printed by Stevenage Printing Ltd, 107-109 High Street, Stevenage, Hertfordshire, SG1 3HS (0438 316601).

Working for Change Page 35